As Indian economy goes into overdrive to prepare for GST, industry witnesses great traction

Setting up of joint working groups is a welcome initiative by the government.

Several key players from the FMCG and packaged goods industry have already incurred huge costs owing to the assessment of impact of GST regime on their business, conducted internally as well as through external consultants.

With the introduction of the GST Bills in Parliament the government has made significant headway into realisation of the once arduous timeline of July 1 for the implementation of the game-changer indirect tax reform—the Goods and Services Tax (GST). As the Indian Economy goes into overdrive to prepare for GST with a little over three months to go, the industry has witnessed great traction and the ambiguity that surrounded the implementation of the new indirect tax legislation is slowly diminishing. In order to ensure the smooth passage of the GST, the government has set up 10 working groups under the guidance of senior tax officials to examine the concerns of industries such as banking, financial and insurance sector, telecommunication, information technology, transport & logistics, exports, textile, oil & gas, gems & jewellery, government services, micro, small & medium enterprises and submit a report on April 10, 2017.

While the key focus areas outlined for review by the GST Working Group are around procedural complexities and rate structures, this forum has the capability to also address industry objections to IT system preparedness, cost of compliance including increase in workforce, end-to-end matching of invoices, which are not limited to the industries that have formed part of these working committees. This is a welcome initiative as several industries have found representation within these working groups. However, other key industries such as FMCG, industrial products, real estate, pharmaceuticals and automobiles, wherein businesses will undergo a huge shift from their current practices, should be provided the same prospect.

Several key players from the FMCG and packaged goods industry have already incurred huge costs owing to the assessment of impact of GST regime on their business, conducted internally as well as through external consultants. The sectors wherein the products move through several channels before reaching the end consumer, leading to input credits being built up at depots, warehouses are looking to the government to provide them adequate support in the form of a larger compliance windows to claim input credits, re-negotiate margins with channel partners, distributors and upgrade their IT systems to become GST compliant, amongst other critical aspects.

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Other key industries dealing with ‘luxury’ products or products to be taxed at a higher rate, such as aerated drinks, tobacco, luxury cars and luxury goods, have also not found representation within these coveted working groups. The government needs to provide a platform to these industries to open a dialogue on the impact of high tax rates on their business strategies, which will need to undergo a significant change.

There is also a sense of ambiguity within industries that were so far exempted from the purview of indirect taxes in the country, such as private education, healthcare, and the power sector. Certainly, if the government could form more such working groups and provide an equal opportunity for excluded sectors to make representation and table their specific peculiarities, the transition to the revolutionary indirect tax reform will be greeted with more enthusiasm.